Case Study on Risk and Return Essay

Words: 3072
Pages: 13
Open Document
Powerline Network Corporation—Case Two: Risk and Return
Thomas Calderone, CJ Anderson, and Megan Wegener
FIN 480: Finance Capstone Course
Professor Randy Lewis
Spring Arbor University
February 7, 2013

Powerline Network Corporation: Risk and Return
Introduction
The topics of risk and return are crucial to financial management because it allows a company to maximize stock value—in which risk is a determinant value, the rate of return in which investors require on various types of securities depends on their individual risks; and common and preferred stocks, bonds, and mutual funds are use for multiple things—401 K plans, for example— and each incur a certain amount of risk that are inherent to the type of investment. It is also …show more content…
Outplace, with a beta of -0.99 and a required return of 2.06%, is above the SML—which indicates that it is undervalued. Games, with a beta of 1.47 and a required return of 11.89% falls below SML, which indicates that it is overvalued and is predicted to offer a lesser return for risk taking. The different securities in our portfolio do not appear to be in equilibrium due to having two securities above the SML a substantial amount more than the third security is below the SML. Since the securities do not appear to be in equilibrium, the problem could potentially be with the inconsistent and non-related data. Also, the marginal investor’s expectations may affect this due to the conflicting assumptions on the data. Since the investor’s expectations lie in two different data tables, which look at different variables, the problem may also lie in the incorrect assumptions.
Issue Six: Required Return
Inflation increases with a growth in the economy due to lowered interest rates. With this situation, more people are able to borrow more money and hence, consumers would have more money to spend. Market risk premium tends to have the same value for all investors since its value is based on what actually happened in the market. However, the overall return/premium will vary and differ from person to person due to different risk tolerances and investing styles. The effects of the securities required returns would be the same with an increase in inflation.
Show More

Related Documents: Case Study on Risk and Return Essay

Case Studies in Finance: Estimating the Cost of Capital Essay

CASE STUDIES IN FINACE CASE STUDY 3: ESTIMATING THE COST OF CAPITAL QUESTION 1: a)b)c) The Capital Assets Price Model (CAPM) is used to describe the relationship between risk and expected return and is often used to estimate a cost of equity (Investopedia, 2009). The cost of equity(COE) of the discount rate is: R = Rf + β*(E - Rf) (1) Rf = Risk free rate of return, usually U.S. treasury bonds β = Beta for a company E = Expected return of the market…

Words 2000 - Pages 8

Essay on Case 13 - Best Practices in Estimating the Cost of Capital

Best Practices in Estimating the Cost of Capital: Survey and Synthesis Case 13 Teaching Notes Introduction “Each year in the US, corporations undertake more than $500 billion in capital spending” (Bruner 184). This case presents a reasonably analyzed set of teaching notes describing how these financially sophisticated corporations estimate their capital costs. Understanding the estimation of capital costs helps identify the uncertainty of the cost-of-capital theory, sets a benchmark for…

Words 1344 - Pages 6

Case Studies In Finance

4/9/2013 Business and Economics Case Studies in Finance Technical Content for Porsche Volkswagen CSX Instructor: Maria Strydom Go8 AFF5300 Case Studies in Finance Business and Economics Technical Content Readings: Chapter 5 from John C. Hull “Risk management and financial institutions” International Edition (2nd). Pearson. Available from the M onash library Derivatives and their use Derivatives Derivatives are a form of contingent claim – their value is contingent upon…

Words 2220 - Pages 9

Essay on Investment Management Case Study

Beta Management Company | | |Investment Management case study | Table of contents Backgrounds……………………………………………………….……1 Strategies………………………………………………………………...1 Background of California R.E.I.T and Brown Group Inc……………2 Return and risk…………………………………………………….....…2 Summary………………………………………………………………...4 Appendix………………………………………………………………...5 Background: Beta…

Words 1284 - Pages 6

Concussions Essay

correlated with the unnecessary return to play before the brain is healed. The athlete wants to return as quickly as possible, but the healing does not lie in his hands. The healing time is directly related to the willingness to follow instructions, which was referenced earlier. The risk of SIS is more prominent in boxing, than in football as described in a study that included thirty-five cases in which only two were not related to boxing. In addition, only one case resulted from the play of football…

Words 489 - Pages 2

Essay Case Study - Unme Jeans: Branding in Web 2.0

Case Study - UnME Jeans: Branding in Web 2.0 ! By James Johnson BUS5629 - Integrated Internet Strategies Florida Institute of Technology Dr. Theresa Kraft November 17th, 2013 ! ! ! ! UnME Jeans Case Study Analysis Page 2 Summary UnME Jeans was a rising star in the world of junior denim fashion. The UnME brand focused on the individuality of teenage girls who coveted their designer-style jeans that featured glitter, jewels, and various forms of metalwork. UnME jeans were sold in…

Words 1680 - Pages 7

Financial Modelling Essay example

Risk is the one of the core concept of finance industry. The subprime mortgage crisis that happened in the United Stats since the end of 2007 queried the ability and the methods of the more efficient risk management. The traditional risk management that using variance to measure risk has been unable to play a part in present capital market. In other words, basing on a risk management sentiment, the occurrence of crisis required new approaches capable of precisely evaluating the systematic risk under…

Words 2744 - Pages 11

Essay about Social Work Law

Social Work Law This assignment involves a case study where Ralph, a fourteen year old boy, is currently in foster care because his mother; Kerry, felt she was unable to control him due to his behaviour. However, Kerry has now expressed that she is unhappy with this foster placement and has requested that her son be returned to live with her and his two younger brothers. The scenario becomes more complex owing to the fact that Ralph has disclosed that his mother had regularly hit him with a walking…

Words 2143 - Pages 9

Roth- Case Paper

FINANCE 301 DR. SHELDON NOVACK CASE STUDY ROTH FINANCIAL ADVISORS PART #1 INTRODUCTION Roth Financial, founded nearly 10 years ago, is a financial services firm which has a diverse base of clients. The founder of this start-up firm, Hugo Roth, developed a reputation for himself and also his associates by the way the financial firm conducts business. As the firm grew, so did the firm’s reputation for honesty and fair dealing. Hugo Roth established a reputation for training and helping…

Words 991 - Pages 4

Nike Inc Essay

Nike, Inc. case study Nike, Inc. is an American company that is involved into the designing, development and selling of shoes, apparel, equipment, accessories and services. It is one of largest world’s suppliers and manufacturer of sports equipment in the world. In this case study report, I will analyze the cost of capitals and make a comparison with Joanna Cohen’s result with my calculation, then get further analysis. From the company’s point of view, the cost of capital is a term used in…

Words 660 - Pages 3